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Transcript
Conference Call of Omnitech Infosolutions Limited
Event Date / Time : 4th August 2009, 3 PM IST
Event Duration : 38 min 08 sec
Presentation Session
Moderator: Good evening ladies and gentlemen. I am Shirley,
moderator for this conference. Welcome to Omnitech
Infosolutions Limited, first quarter fiscal 2010 earnings
release conference call. As a reminder, all participants’
line will be in listen-only mode, and there will be an
opportunity for you to ask questions at the end of today's
presentation. In case you need any assistance during the
conference, please press * and then zero on your
telephone keypad. Please note that this conference is
being recorded. I would now like to hand over the
conference to Mr. Shekhar Singh Batham of Prana Public
Relations.
Shekhar Singh Batham: Thank you Shirley. Good evening everyone and welcome
to the discussion of Omnitech’s financial result for the
quarter ended June 2009. Joining us today on this call is
Mr. Atul Hemani, Managing Director and Mr. Sanket
Mangrulkar, Corporate Financial Analyst for Omnitech
Infosolutions Limited. We will start with a brief statement
on company’s performance in the recently concluded
quarter from the management followed by question and
answer session. With this, I hand over the floor to Mr.
Hemani. Over to you sir.
Atul Hemani: Good afternoon everyone. It is my pleasure to invite all of
you in this conference call where we are going to talk
about Omnitech’s performance for the first quarter of this
financial year. I am glad to announce that the things are
looking now brighter from the external perspective that
markets are showing the signs of recovery, not only
domestic, but into international market as well, which we
were always sure and confident about and we continue to
leverage that benefit. In fact, we strongly believe that this
has helped Omnitech to emerge with some innovative
packaging and the products and services to address the
global customers and also win over some new contract
and also get the record high…the conversion in case of
our existing contract, so I will take you through some kind
of overview about Omnitech, the growth, the strategy, and
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in future the roadmap and details about the financials
Sanket will take you through.
So, let me start with the strategy what we had decided and
how it is doing well. Many of you those who would have
interacted with us in the past either in person or through
the teleconference call or by way of going through our
performance review reports of last couple of quarters and
the year, we have established ourselves in the area of
business availability and business continuity services. We
identified that more and more mid market and small and
medium customers will continue to look at IT as their key
enabler in their businesses, and there will be a need for
them to outsource such kind of services to a reliable
partner who could not only provide them the best of the
technical expertise, but also to help them to get the value
in the current environment more relevant. Otherwise, also
it is the requirement of the business that to get the value
for money for their services. So that is where we
continued working in that area because that is where we
hail from our services like Infrastructure Management
Services blended with now remote delivery model, our
performance management services, and application
management services has really helped us to win some of
the large and significant contract while competing with our
peers in India and into international market as well. We
have been in a position to draw the very good referrals and
now it is time for us to win some more deals, especially
you would know that we got very good breakthrough in the
EMEA region that is where in Europe and Middle East, and
we continue to leverage our organic growth potential in
that region very aggressively. We have already initiated
the process of setting up our local presence by
strengthening our local team furthermore in the European
region and all the processes are on to have our own outfit
at Netherlands, which will be 100% subsidiary of
Omnitech. This will help us to further reinforce in the
market where we are kind of leaders from India and more
and more customers have started recognizing our
capabilities and instilling contracts and orders to us. These
are the contract those are fairly large terms, they are
executed in three to five years, and they help us to also get
an upside because these are…some of the contracts are
the companies which are the service providers. They in
turn provide services to their customers in that part of the
world and by virtue of their growth of the business with
their number of customers, the contract also has an upside
available so that is something which is good for us that we
continue to grow and leverage our position in that space.
We are uniquely positioned in Middle East and it has been
now couple of years that we have been operating in that
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market, so we are also now in Saudi and Bahrain and both
areas are now doing not only the business in the areas of
Business Continuity and Disaster Recovery, but also in the
areas of Performance Management as well as some
Application Management and also Remote Infrastructure
Management Services, so that is something which is
definitely giving the company a clear edge. We continue to
definitely leverage our Indian market that is where we got
almost 100% of our contracts renewed this year, and I am
glad to share with you that many of the contracts are to our
use to get renewed for kind of a period of a year and this
year, we could grab an opportunity and convert those
contracts for three years and that also has helped us to get
into a remote model and that is where the company’s
bottom line and profitability will definitely be better using
the remote infrastructure management services.
So having said that continuing leveraging in business
availability space, by also introducing, we recognize that
there is more and more need of high level of caliber and
expertise is required, therefore, we launched our products
called VPIO, that is, virtual PIO that is basically, the
companies need not have to hire a full time PIO because
of the size of the organization or because of the business
requirement where we can provide them not only the
processes, the people, the prudent tools and technology,
and last but not least the required equipment and
infrastructure by using our Disaster Recovery Omni
Centers across the country. This further enable the
customers not to worry about having owned their
infrastructure, they can look at the CAPEX to OPEX model
and they can also move towards the latest trend, which is
cloud computing where the people can use “Pay as per
Use” model, so this is something which is in synergy, in
line with our growth charter, and we believe that in time to
come, we see that more and more strategic outsourcing
will happen in the areas of mid market and SME space.
We are fully ready for that and we continue to leverage our
technical expertise, our business delivery model, and our
quality processes.
On quality layer, Omnitech has been always on a front
runner and we have been ISO certified organization for last
so many years and we have taken further aggressive
move, which were discussed in the last couple of our
quarterly review or annual report that we always upscale
our quality standard and reach towards continual
improvement program which is on. We also have taken
the initiatives that all our Disaster Recovery Centers now
will be ready with ISO27001 and BS25999, so hopefully in
next four months we will have all our centers, not only the
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company process and the businesses certified, but all our
technology centers also certified.
So, these are the initiatives we will continue to leverage
and do that. We have been able to get a significant mind
space and the growth in the area of business continuity
where we have established ourselves as the leader, and
we continue to establish and continue to set the trends in
that particular space because we believe that there is a lot
more to be done in this particular space, not only in the
area of commercial, but awareness and knowledge
perspective as well. So, we have taken various initiatives
where we as a company participate in various corporate
forums be it NASSCOM lead event or ____ association
lead event like IMP or it could be any public forums, which
is lead with Rotary or Lions we go and we make people
aware that how Disaster Management is important and
how the Business Continuity is important in everyone’s life,
so this is further enchanting that we continue to establish
as a clear leader, and we continue to invest in that space
for obvious benefit for the businesses as well.
With one more important news I would like to share and I
am proud to announce that Omnitech has been recognized
and also awarded an award, which is a SME Corporate
Governance Award 2009, which was instilled by Business
Today and Yes Bank and we are proud that we have got
recognized for our best practices, right from our Corporate
Governance at a Board layer to execution down the line
layer, so we will continue leveraging on our strengths. We
certainly are looking at, the times are getting better, and
we were all prepared. We have done consolidation last
two quarters and now we are all set to take very
aggressive move and as you would know that the last
15th, in the mid of May in our conference call we had
talked about that we have already initiated the process in
the area of M&A, and we have already gone ahead and
right from our long list to we have got into a short list and
we definitely are in a process of checking the various
target companies in the areas of US and Europe because
those are the two target territories, which we are looking at
and soon we should be in a position to zero down on A
and B companies. We also are open and actively
considering the companies for acquisition in domestic
space. The earlier one, which was there they were
because of the technical layer. We have dropped them
and now we are looking at some more companies to look
at and acquire them. So, I think to summarize that
Omnitech is rightly poised today in terms of the positioning
of its offerings, in terms of getting the customers’ referrals,
getting the right processes, the infrastructure, and more
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importantly in terms of the growth strategies. Last, but not
least I must take this opportunity to thank all stakeholders,
investors, customers, vendors, and most importantly
Omnitians that we have continuously always believed that
our key assets are the people and we continue to
leverage. We have a full fledge initiative called Patsala,
that is the training and development division of Omnitech,
which identifies the leaders out of the managers and get
them ready for the next level. We have a structured
program where we are identifying the key talents and
working with them for their growth plan for the time to
come and this has given tremendous results in terms of
our growth needless to mention that while we continue
leverage our existing people strength to grow organization,
we are also hiring some extraordinary talent in the market
and making organization scalable and ready for the future
growth.
We will continue to expand in India organically, in
Netherlands, in Belgium, in Middle East, and we are
exploring the opportunity to expand our market in the Far
East, which is at Singapore and Hong Kong. So with that I
personally am confident that we have the things right in
place. The stage is set and for us now it is time to get the
benefits with the markets getting better and better day-by-
day. With that I hand over to Sanket to take you through
some kind of financial numbers and then we will go for
questions and answers. Thank you.
Sanket Mangrulkar: Thank you Atul. Good afternoon everyone. I would be
taking you through the financial performance of the
company. In the quarter ended June 2009, we posted a
total income of Rs.42.9 crores that is up by just 0.87%
YOY. The EBITDA stands at Rs.13.79 crores, which is 5%
up. EBIT stands at Rs.10.79 crores, which is down by
around 6.5%. The PAT, profit after tax stands at Rs.7.58
crores, which is down by 14.22%. The marginal increase
in the sales is because of the 100% renewal of the contract
and also we have bagged a few contracts in the remote
infrastructure management space in the international
market because of which we have been able to perform
well, and we feel that going ahead the stage is set and we
would grow multifold. Also, we have a strong order book
position as on date, which stands at round about Rs.120
odd crores, so we feel that in the quarters to come, the
sales as well as the total revenue contribution from the
international market will be much higher. Also, talking
about the variability of the profitability, I would like to
highlight a point over here, that in this quarter our
depreciation has increased by 83.88% over last quarter,
that is, June 2008, which is mainly because of the
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investment in the CAPEX. We have invested somewhere
close to Rs.34 to 36 odd crores in financial year 2009
because of which the depreciation figure has gone up.
Then, also the staff cost has increased from the last
quarter. This is typically because as Atul very rightly
mentioned that we have been hiring young talents from the
top schools, also we have hired a few people who are at
the key managerial post in the organization to boost our
sales and marketing effort because we feel that now is the
right time to go into the market and pitch and move and go
aggressively so because of that these are the two main
contributors to the cost. Whereas we have come down on
the general and administration cost a lot; we have reduced
it by somewhere close to 28%. It is mainly because of the
cuts in the cost and we have been able to improve the
overall efficiency of the organization and the way we work
and that is why we have been able to bring down that cost.
So if you see on an overall EBITDA level, we have grown
by 5%, but on an overall PAT level we have reduced by
around about 14.22%. Then also on the tax aspects of it,
we stand at Rs.2.12 crores, which is the tax for this year. If
you look at the tax compared to the previous quarter, that
is, quarter ended 31, March 2009, the tax has significantly
dropped and the only reason being we always calculate
the deferred tax at the end of the year. So that is the only
reason why there has been a significant drop in the tax
expenses compared to the last quarter. EPS though
stands at 5.77%, which is again 14% down; then all the
contract bookings are done and there have been
transitions that are on. This year we have renewed, as I
told you that we have renewed all the managed services,
almost 100% of the managed services contract and quite a
few of them we have been able to convert it into RIMS
contracts because of which the transitions are on and
hence the billing will go on and will continue and get on in
this quarter from Q2 onwards so that is where we will see
the results coming in from Q2 onwards.
Then on the contribution this year according to the industry
wise, BFSI has been a major contributor again for us with
48% contribution to the total revenue then, IT and ITES
has gone up to 22% and manufacturing has also gone up
to 22%, which is purely because of the contracts, which we
have won. In RIMS space in the European market, these
two companies ID factory and ______ we won those
contracts from them and purely on that aspect the IT,
ITES, and manufacturing sector contribution has gone up.
Also on the region wise contribution, India again is the
largest contributor, which is 76% of the total revenue
domestic sales. Europe has been coming out good for us
and it has contributed around about 7.5% to the revenue
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whereas Canada stands at point 0.5% and Japan at 5%.
Middle East has grown to 5% and US stands stable at
5.5%. On the revenue mix, which is segment wise, I would
like to say here that Business Availability Services, they
stand at 60% of the total revenue out of which
Infrastructure and Application Management contributes
70% and Performance Management and Software Testing
contributes around about 30%. Business continuity has
grown for us, but typically as a percentage of revenue it
remains constant at 12% and System Integration has come
down to 27%. I guess that is about it from my side. I
would like to have the question and answer session after
this thing.
Question and Answer Session
Moderator: Thank you sir. Ladies and gentlemen, we
will now begin the question and answer session. If you
have a question, please press * and 1 on your telephone
keypad and wait for your turn to ask the question. If your
question has been answered before your turn, and you
wish to withdraw your request, you may do so by pressing
# key.
First question comes from Mr. Sanjay Shah of KSA Shares
and Stocks.
Sanjay Shah: Atul bai, good evening.
Atul Hemani: Good evening.
Sanjay Shah: Congratulations for receiving an SME Corporate
Governance Award sir.
Atul Hemani: Thank you very much. It is all because of support from you
all people.
Sanjay Shah: Appreciate sir. Sir, I would like to know in future for next
three quarters from you this being the first quarter very flat
and we would also like to know about the idle fund, which
is raised in IPO still lying at around Rs.12 crores, how we
are going to use and my other question is what is the
progress in our WCC segment and how is our tie-up going
on with KCR?
Atul Hemani: Let me put across answer each by each one question.
One is our IPO fund is lying idle. As you know that the
major of the fund, which we have year marked that is for
M&A activity and for the technology center. In both the
places we took a conservative look and we never wanted
to get aggressive and in between in the past all of us
passed through the phase where we all kept hearing that
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cash is king and we continued to have the king with us, but
then the time has come that now we have gone aggressive
and we definitely are going aggressive not only in the new
centers, but also in M&A space. So, we believe that in
next quarter or two we would consume this particular fund
completely fully and it will be put to effective use.
The second question you definitely put across that in terms
of the ______ relationship, _____ is basically enabled us
to get the larger contracts in Europe, Middle East, and
especially in India, we have been used and leveraged that
particular tool to provide 24 x 7 support with the help of
______ as well as our own home grown tools like Omni
monitor, Omni manage, and Omni audit. This has further
also blended with some of the large tools like HPOV, Open
View, and IBM Tivoli. So this has really helped us to
establish ourselves into a remote infrastructure
management services and also provide customers the
services they want, so we have become the truly managed
services provider in that particular space. So, we continue
to leverage our strength using ____ in that particular
space. You had mentioned about one more thing, which I
missed out. What was that?
Sanjay Shah: It is regarding our WCC segment.
Atul Hemani: Okay, WCC. That has got really well that with IBM we
have entered into. You will get more details in our
performance review that we conducted Smart Integration
Program Series with IBM, which is used on WCC. WCC
for the people those who may not be aware, that is our
Websphere Competence Center. It is one of its kind
center in country in western region and what we have done
is that established the practice where we not only provide
the expertise in terms of the skilled people, but also the
processes and most importantly the tools and virtual lab
available to our customers to run their particular
application. Websphere has been number one middle
ware in the world today and it is also predominantly being
used in banking financial services and insurance sector.
We leverage that particular strength to address vertical
needs of the customer and this is very close to customer,
because there are some of the large core insurance or
core banking applications, which get connected to. Many
of us would know that today all the RTJs, all the payment
gateways which are connected to RBI, they run on MQ
series and WCC initiatives of IBM. So that gives us the
furthermore leverage and this also has been further
leveraged to position this particular services into
international market foray and we have got the pilot project
already which I was talking about in the Far East and we
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continue to leverage that particular trends into various
other market and we are actively dialoguing in Middle East
also for that particular strength, so this trend continues to
grow that is the largest growth area in some vertical
domain expertise with technology expertise.
Sanjay Shah: What business you see in that in the future?
Atul Hemani: Next future, the WCC business, currently if I were to talk
about in last one quarter itself we have jumped almost
230%, but then that’s obviously the kind of volume was
very, very small. We expect that we should be in a
position to continue 100 plus percentage because of the
size what we are talking about it, but in next three years I
expect that this particular business as a practice would go
as high as around 12-15 million dollar for us.
Sanjay Shah: Sir, right now what is the seating capacity for RIM net of a
place and what are the Disaster Recovery Center we are
looking to put in, how many other centers we are looking to
put in the current year?
Atul Hemani: Currently, as last we had announced that our Hyderabad
Center is up in running probably I think my apology I
missed out on that because probably last time we had
already discussed about it and I assumed that it is already
there for us and Hyderabad Center is 250 seater, Navi
Mumbai center, that is not absolute seat so these are not
saleable seats and Navi Mumbai as you all know it is a 326
seats. What also we have done is that we have taken the
additional facility of Navi Mumbai that fourth floor where we
have converted into a knock because our ongoing demand
requirement for RIMS, so we have now two knocks, one is
definitely running from Andheri and one is running from
Navi Mumbai. We have in Hyderabad Center coming up
full fledged which is the next expansion. In Hyderabad this
is only first phase, which is completed. The second phase
will get completed and it will have a knock of 175 seater
and total seats in Hyderabad will be 550. We also have
the next center coming up at NCR region because that is
one of another region, which is permanently growing and
we would definitely have our presence in their and we also
had an active dialogue at Bangalore and other place where
we will look at establishing the center there as well. So by
March this year we would have two more centers up and
running, one in NCR and one in South region.
Sanjay Shah: Including 175 additional seats in Hyderabad will be
completed in current year?
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Atul Hemani: Exactly 250-seater is already kind of completed. We
already have customer occupying that state as a part of
the contract and Hyderabad is kind of already done. I am
talking about additional two centers, one in NCR and one
in either of the southern region. It could be Bangalore or it
could be Chennai or it could be even Jaipur because we
are going ahead with the customers’ demand and
customer’s requirement right now to satisfy more.
Sanjay Shah: So how do you see the next few quarters panning out
because last few quarters spanning out there has been big
flat, how do you the next few quarters in the current year
and maybe next year?
Atul Hemani: Okay. As far as next quarter we definitely…as Sanket
rightly mentioned that some of the large contract, which we
have booked already they are on a transition phase so
generally these are the large contracts which take anything
between three to four months for complete transitions to
happen and the first billing can only happen after that so
we definitely are poised to get all those billings happening
from July and August onwards so that is where it will
definitely yield a better thing.. We also have some large
other project based contract, which we have won and that
also we will bring in. We believe that we should be in a
position to comfortably get anything between 15%-20% as
organic growth on a conservative side and that is
excluding the inorganic part, which we will definitely be
able to do in this financial year.
Sanjay Shah: Right sir. Thank you very much.
Moderator: Next question comes from Mr. Neerav Dalal of Capital
Market.
Neerav Dalal: Good afternoon sir. I wanted the CAPEX figure for the
Hyderabad facility and when will the knock come up at
Hyderabad?
Atul Hemani: Hyderabad, the center which is a DR center with a data
center when it will be like, it is in a last phase. The
Recovery Center is completely up and running and as of
today we would have invested something around Rs.4.5 to
5 crores right Sanket? and as soon as the first phase gets
over that is where data center and work place area
recovery will get completed that would be roughly around
Rs.12-14 crores and the one in the second phase which
will only come up may be by next June because that is
right from ground up structure, which will be done by
Raheja’s and handed over to us.
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Nirav Dalal: I am bit confused then knock would come in next June,
right?
Atul Hemani: I am saying that the second phase of knock, which will be
175 additional seater, which will be coming at Hyderabad,
will be in the second phase, but currently what we are
talking about is the 250 seater with a data center is the first
phase.
Neerav Dalal: Okay out of that some seats are operational and some are
not operational that would?
Atul Hemani: If we require we can use an year mark or some of the
areas for knock, but currently we have a capacity in Navi
Mumbai and Mumbai so we are not looking at it, but your
point is well hit that if at all the demand comes in we will
use some part of the Hyderabad center also for our
network operation center. In that particular case, it will be
50 seaters will be ear marked out of 250.
Nirav Dalal: Okay, so the complete CAPEX would be Rs. 14 crores for
the Hyderabad first?
Atul Hemani: That is right.
Neerav Dalal: Right sir. Sir and a take on your margins, how would they
pan out going forward?
Atul Hemani: Yes last I had mentioned that we have RIMS and business
continuity our side, which helps us to definitely get upside
on the margins and while the running services, definitely
get some kind of a pressure because of market condition
and that gets somewhere down the line little here and
there. We expect that we would settle anything between
17%-18% as a PAT level.
Nirav Dalal: And how much is the contribution of RIMS at the moment?
Atul Hemani: RIMS contracts we have already booked this time more
than 30%.
Neerav Dalal: Of the revenue say of Q2 what will be the share of RIMS?
Sanket: Typically Neerav how it happens is that if you see my
contribution, 60% comes from business availability
services out of that 70% is infrastructure and application.
From that 70% typically 30-35% comes from RIMS.
Neerav Dalal: Okay great. Sir one more thing the performance review
has not reached us?
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Atul Hemani: Yes Neerav, you will get the performance review by
tomorrow.
Neerav Dalal: And take on the tax rate, what would be the full year tax
rate for FY10?
Atul Hemani: FY010 the full year tax rate will be somewhere close to
18%-20%.
Neerav Dalal: Right sir, thanks a lot.
Moderator: I request the participants to press * and 1 for your
questions. The first follow-up question comes from Mr.
Neerav Dalal of Capital Market.
Neerav Dalal: Sir, what is the debt and cash on books?
Atul Hemani: Debt I think will be virtually zero, Rs.1.2 crores…or that
kind of thing.
Neerav Dalal: Cash would be excluding the IPO proceeds. IPO proceeds
will be Rs.12 crores right?
Atul Hemani: Yes that is right.
Neerav Dalal: Other than that cash?
Atul Hemani: Rs.30 crores.
Neerav Dalal: Including the IPO and debtor days?
Atul Hemani: Debtor as of March they were almost around 115 and odd.
As of 30th June they would have settled anywhere around
100-105. We expect that by end of this quarter to happen
well within 90. This was mainly because some of the
contracts we had to willingly work with the customer and
give them the option for quarter arrears.
Neerav Dalal: Number of employees currently?
Atul Hemani: I think around 750.
Neerav Dalal: So there has not been any change as such?
Atul Hemani: No significant change.
Neerav Dalal: By year-end what would that look like?
Atul Hemani: The people count is not kind of directly, now relationship
for us as a technology services company because we are
getting more and more center driven, more and more
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remote infrastructure driven, so we still expect that we
should be in a position to… what growth we are looking at
it. We would have 10%-15% people being added up. It
will be more the churning that the lower end onsite team
will get reduced, but high-end team will get added up.
Neerav Dalal: What is the occupancy of the DR sites in Navi Mumbai?
Atul Hemani: As you know that DR site at Navi Mumbai has almost
reached to breakeven long back and currently if you look
at the perspective with respect to our server room plus
work place recovery, it has almost crossed 68%.
Neerav Dalal: And Hyderabad came up in between in the quarter or…?
Atul Hemani: Hyderabad actually went operational from first of August.
Neerav Dalal: What would be the seat utilization at the moment for that?
Atul Hemani: We have currently 20% utilization of that particular place
available.
Neerav Dalal: Okay, thanks a lot.
Moderator: There are no further questions. Now, I hand over the floor
to Mr. Sanket for closing comments.
Sanket: Thank you all. Thank you for attending this conference
call. For any further queries, you can mail us at
IR@omnitechindia.com and we would be more than
pleased to address your queries. Thank you and have a
nice day.
Atul Hemani: Thank you everyone.
Moderator: Thank you sir. Ladies and gentleman, this concludes your
conference for today. Thank you for your participation and
for using Door Sabha’s Conference Call Service. You may
disconnect your lines now. Thank you and have a
pleasant day.
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Note: 1.This document has been edited to improve readability.
2. Blanks in this transcript represent inaudible or incomprehensible
words.
Transcript - Conference Call of Omnitech Infosolutions Limited